Annual Report 2015 (Fiscal year ended 31st March, 2015)

Transcription

1 Annual Report 2015 (Fiscal year ended 31st March, 2015) Contents Five-Year Summary 1 Message from the President 2 Operating Results and Financial Status 3 Management Policies 7 Consolidated Financial Statements 9 Corporate Information 51

2 Five-Year Summary Consolidated Millions Thousands of of yen U.S. dollars Net sales 319, , , , ,048 2,657,848 Income before income taxes and minority interests 31,113 17,370 5,028 4,678 5, ,910 Net income 21,068 11,034 3, , ,320 Per share of common stock: Net income * Cash dividends Millions of yen Balance sheet data: Shareholders' equity 153, , , , ,824 1,274,846 Total assets 275, , , , ,055 2,290,945 Yen * Ezaki Glico Corporation implemented a share consolidation on its common stock with a ratio of two shares to one share on October 1, Net income per share is calculated based on the assumption that consolidation of shares had been carried out at the beginning of the previous fiscal year. 1

3 Message from the President In the consolidated fiscal year under review, the Japanese economy showed signs of recovery in some areas, including improvements in corporate earnings and employment conditions. However, the prolonged adverse effects of the consumption tax hike and a decrease in real income due to the rapid depreciation of the yen caused consumption trends to remain slow. This, combined with concerns for a downturn in economies overseas, led to continued uncertainty over the course of the economy. The food industry continued to face increasing challenges, with the weaker yen leading to soaring prices of raw materials. In light of this situation, our corporate group has proactively implemented various measures. These include expanding the sales of our mainstay products and launching new products and products of affiliates. In addition, we have implemented sales promotion strategies in collaboration with popular game characters. Efforts were also concentrated on promoting business development outside Japan, centered on China, Thailand and Indonesia. These efforts, based on Glico Group Action Guidelines, reflect our commitment to business operations that continuously earn the trust and respect of stakeholders. Although our food products posted decreased sales from the previous fiscal year, our confectioneries, ice cream, milk and dairy products, food ingredients and other segments recorded increased sales. Consequently, consolidated net sales amounted to 319,394 million, an increase of 1.3% from the 315,399 million total of the previous fiscal year. Regarding earnings, despite rising prices of raw materials caused by the depreciation of the yen and exchange rate fluctuations, there was a decrease in the overall cost-to-sales ratio. This is attributable to factors including increased sales, changes in the product portfolio and our Thai subsidiary s recovery from flood damage. As for the selling, general and administrative (SG&A) expenses, there was a rise in expenses for sales promotion and advertising caused by the implementation of aggressive sales strategies. Despite this, there was a decrease in transportation and storage costs and employee welfare expenses. As a result, operating income amounted to 14,248 million, an increase of 2,602 million from the previous fiscal year ( 11,645 million). Ordinary income was 17,610 million, an increase of 4,070 million from the previous fiscal year ( 13,539 million). During the consolidated fiscal year under review, a gain on the sale of fixed assets resulting from the transfer of our old factory site in Tokyo was posted as extraordinary income. As a result, net income amounted to 21,068 million, an increase of 10,034 million from the previous fiscal year ( 11,034 million). On January 14, 2014, Ezaki Glico Co., Ltd. sold all of its shares of Glico Ham Co., Ltd., which handled meat products. As such, the meat products segment is no longer a part of the results for the consolidated fiscal year under review. In addition to an interim dividend of 5 per share, we will pay a year-end dividend of 30 per share for the consolidated fiscal year under review. Although we expect increasing difficulties in our business environment, we will unite the efforts of all Group companies to improve performance and meet the expectations of our shareholders. Your continuing support will be deeply appreciated. June 2015 Katsuhisa Ezaki, President and CEO 2

4 Operating Results and Financial Status (1) Operating Results Results by segment (Unit: millions of yen, %) Segment Net Sales Operating Income FY2015 vs. FY2014 YoY (%) FY2015 vs. FY2014 YoY (%) Confectioneries 113,757 12, ,170 2, Ice Cream 73,809 3, ,040 (163) 94.9 Food Products 22,314 (151) Milk and Dairy Products 94,390 2, , Meat Products (15,328) (564) Food Ingredients 9, Other 5, Adjustment (465) (347) Total 319,394 3, ,248 2, [Confectioneries Division] Sales of Kobe Roasted Chocolat as well as the Pocky and Pretz groups increased from the previous fiscal year. Outside Japan, sales grew significantly in Thailand and China. The new Indonesian wholesale subsidiary established in March 2014 also contributed to the growth of sales. As a result, divisional sales amounted to 113,757 million, a 12.5% increase over the previous fiscal year ( 101,077 million). As for divisional profits, operating income was 8,170 million, an increase of 2,632 million from the previous fiscal year ( 5,538 million). This is attributable to increased sales and the Thai subsidiary s full recovery from the flood disaster. [Ice Cream Division] Although sales of Papico decreased from the previous fiscal year, Giant Cone and Ice no Mi marked sales increases. Choco Fondue Soft also enjoyed a steady sales rise. Moreover, the two wholesale subsidiaries recorded increases in sales revenue. As a result, divisional sales totaled 73,809 million, a 5.0% increase from the previous fiscal year ( 70,306 million). As for divisional profits, fluctuations in raw material prices resulted in an increased cost-to-sales ratio. Consequently, operating income was 3,040 million, a decrease of 163 million from the previous fiscal year ( 3,203 million). [Food Products Division] While ZEPPIN recorded a sales increase over the previous fiscal year, Cup Soup sales declined. As a result, divisional sales totaled 22,314 million, a 0.7% decrease from the previous fiscal year ( 22,465 million). As for divisional profits, improvement of the cost-to-sales ratio was more than enough to offset a decrease in profits caused by lower sales revenue. As a result, operating income amounted to 669 million, a 668 million increase over the previous fiscal year ( 1 million). [Milk and Dairy Products Division] Dororich experienced a sales drop from the previous fiscal year, while Breakfast BifiX Yogurt and Powdered Milk marked sales increases, as did the new products Almond Koka and BifiX1000. However, sales revenue from subcontracted operations from Kirin Beverage Co., Ltd. declined from the previous fiscal year. As a result, divisional sales totaled 94,390 million, a 2.9% increase from the previous fiscal year ( 91,688 million). 3

5 As for divisional profits, the implementation of aggressive sales strategies caused an increase in sales promotion and advertising expenses. However, changes in the product portfolio lowered the cost-to-sales ratio. Consequently, operating income was 2,301 million, an increase of 301 million from the previous fiscal year ( 2,000 million). [Food Ingredients Division] A-glu enjoyed a sales increase over the previous fiscal year. As a result, divisional sales were 9,464 million, a 4.5% increase from the previous fiscal year ( 9,060 million). As for divisional profits, a review of sales prices and reductions in general expenses pushed up operating income to 268 million, an increase of 51 million over the previous fiscal year ( 217 million). [Other] Although Sports Foods suffered a decline in sale revenue from the previous fiscal year, Office Glico enjoyed sales growth. As a result, sales in this segment totaled 5,660 million, a 3.4% increase over the previous fiscal year ( 5,475 million). As for profits, increased sales revenue from Office Glico pushed up operating income to 265 million, an increase of 25 million from the previous fiscal year ( 240 million). General consolidated performance forecasts including production, sales, profits and losses for the next fiscal year The Japanese economy is on track for a mild recovery, with improvements in corporate earnings and employment, spurred by the economic packages and monetary policies led by the government. Even so, the future of the economy is expected to remain unclear. The downturn of economies in the U.S., China and emerging nations are risk factors that may drag down the Japanese economy. The food industry is expected to experience challenges such as raw material prices remaining high and rising prices of import items caused by the depreciation of the yen. These will have a significant negative impact on cost of sales, causing the environment surrounding the food industry to remain increasingly difficult. To cope with these difficulties, our corporate group will stay abreast of consumer trends as we strive to nurture current mainstay products and develop new higher value-added products. Furthermore, effective sales strategies will be implemented to suit individual distribution methods, along with aggressive promotion of international businesses. By adopting these measures, we aim to achieve net sales of 340,000 million in the next fiscal year, a 6.5% increase from the fiscal year under review. Our profit targets are: an operating income of 15,000 million (up 5.3% from the fiscal year under review), ordinary income of 16,200 million (down 8.0%) and a net income attributable to the shareholders of the parent company of 10,900 million. Divisional consolidated sales forecasts for the next fiscal year Divisional sales projections are as follows: Confectioneries Division sales of 121,500 million (up 6.8% from the fiscal year under review), Ice Cream Division sales of 80,200 million (up 8.7%), Food Products Division sales of 23,000 million (up 3.1%), Milk and Dairy Products Division sales of 98,500 million (up 4.4%), Food Ingredients Division sales of 9,800 million (up 3.6%), and other segment sales of 7,000 million (up 23.6%). 4

6 (2) Financial Conditions Assets, liabilities and net assets As of March 31, 2015, total assets were 275,303 million, an increase of 32,059 million compared to the end of the previous fiscal year. Current assets were 132,323 million, an increase of 17,454 million from the end of the previous fiscal year. The main components of this increase were increases in cash and deposits, and raw materials and supplies. Fixed assets were 142,980 million, an increase of 14,605 million from the end of the previous fiscal year. Main contributors to this increase included increases in investments in real estate and investment in securities. Total liabilities were 100,464 million, an increase of 2,724 million compared to the end of the previous fiscal year. The main components of this increase were increases in notes and accounts payable, and accrued income taxes. Net assets were 174,839 million, an increase of 29,335 million compared to the end of the previous fiscal year. Main contributors to this increase included increases in retained earnings and net unrealized holding gain on securities. Consequently, net worth ratio was 61.5%, up 3.4 percentage points from the end of the previous fiscal year. Cash flows for the fiscal year under review (Unit: millions of yen) Previous fiscal year (consolidated) Fiscal year under review (consolidated) Increase (Decrease) Cash flow operating activities 22,500 24,520 2,020 Cash flow investing activities (14,935) (7,877) 7,058 Cash flow financing activities 8,944 (13,203) (22,147) Balance of cash and cash equivalents at beginning of term Balance of cash and cash equivalents at end of term 35,378 54,225 18,847 54,225 59,406 5,181 Free cash flow during the fiscal year under review, calculated by subtracting net cash used for investing activities from net cash provided by operating activities, totaled 16,643 million, an increase of 9,078 million from the free cash flow of 7,565 million posted during the previous fiscal year. This increase was mainly due to the increase in income before income taxes and minority interests. Net cash used in financing activities was 13,203 million, an increase of 22,147 million from the previous fiscal year, due to the repayment of a long-term debt. As a result, the balance of cash and cash equivalents at the end of the fiscal year under review totaled 59,406 million, an increase of 5,181 million from the 54,225 million at the end of the previous fiscal year. 5

7 Cash flow indicator trends Mar Mar Mar Net worth ratio (%) Net worth ratio on market value basis (%) Debt coverage ratio (years) Interest coverage ratio (times) Notes: Net worth ratio: Net worth / Total assets Net worth ratio on market value basis: Market capitalization / Total assets Debt coverage ratio: Interest-bearing liabilities / Amount of cash provided by operating activities Interest coverage ratio: Amount of cash provided by operating activities / Interest paid * All indicator values shown above were calculated from financial results on a consolidated basis. * Market capitalization was calculated by multiplying the closing stock price at the end of the fiscal year by the total number of shares issued and outstanding at the end of the fiscal year (after deducting treasury stock). * Cash flow operating activities in the consolidated cash flow statements are used for the above equation. Interest-bearing liabilities refer to all liabilities for which the Company pays interest from among those recorded in the consolidated balance sheet. The amount of interest paid recorded in the consolidated cash flow statement is also included. (3) Basic Policy for the Distribution of Profits, and Dividends for the Current and Next Fiscal Years Considering returns of earnings to our shareholders as one of our most important management objectives, our corporate group s basic policy prioritizes achieving a stable dividend level while at the same time making sure to secure internal capital resources necessary for strengthening the corporate structure and assuring aggressive business development. In the future, from a medium to long-term perspective we intend to continue with our efforts to maintain sustained growth, improve corporate value and augment shareholder value through the proactive investment of management resources into business fields with high growth potential. At the meeting of the Company s Board of Directors held on May 15, 2015, we resolved to pay a year-end dividend of 30 per share. In addition to an interim dividend of 5 per share already paid out on December 10, 2014, this will add up to a full-year dividend of 35 per share. As of today, our plan is to pay a full-year dividend of 40 per share for the next fiscal year. Note: On October 1, 2014, Ezaki Glico Co., Ltd. implemented a 1-for-2 reverse stock split in which every two shares of our issued and outstanding common stock are converted into one share. Accordingly, the above-mentioned full-year dividend for the fiscal year under review is the sum of the pre-reverse stock split interim dividend and the post-reverse stock split year-end dividend. As such, the year-end dividend and full-year dividend are equivalent to 15 and 20 per share, respectively, if converted to the basis prior to the reverse stock split. 6

8 Management Policies (1) Group Management Basic Policy Our corporate philosophy is to offer a wholesome life in the best of taste. Based on this corporate philosophy, we strive to offer high value-added products that meet the needs of our customers in all markets throughout the world. By so doing, we aim to contribute to society through the development of the food business. It is our hope that this policy will lead to stable growth and will meet shareholder expectations. We will also continue to share our prosperity with all our stakeholders, including customers, business partners, employees and local communities. (2)Medium- and Long-term Corporate Strategies and Future Challenges As the social situations and economic environment surrounding our business change at an amazing pace on a global scale, and a further rise is predicted for energy resource and raw material costs, our corporate group is determined to boost our corporate value, while flexibly responding to these environmental changes. The key requirements for attaining our medium/long-term goals are: 1) creation of powerful product categories and development of new health-related business; 2) promotion of global business, with focus on Asia; and 3) enhancement of competitive strength through concentration of management resources. As we specify these three main objectives, we will implement specific action plans. 1) Creation of powerful product categories and development of new health-related business We will concentrate our corporate resources on product categories to be strengthened, in order to build a strong brand that is highly competitive in the global market. At the same time, we will seek to lay the foundation for our health-related business. 2) Promotion of global business, with focus on Asia Our investment of corporate resources will be focused in Vietnam, Indonesia and other Asian regions in addition to China and Thailand, our current mainstay markets. We will also seek to expand our confectionery business globally with Pocky as the core product line. At the same time, we will work on building a foundation for the global development of new non-confectionery business areas, such as sales of ice cream products. 3) Enhancement of competitive strength through concentration of management resources We will strive to enhance governance functions through unified group operations, while also reinforcing our competitive strengths by concentrating our total group resources. In Japan, we will seek to improve profitability by streamlining and enhancing the efficiency of management practices through the absorption-type merger of Glico Dairy Products Co., Ltd. scheduled for October 1, We will also work to address compliance and environmental issues, promote development and proper deployment of human resources, and facilitate interactions among the research, development, production and sales departments, in order to put our group s unified comprehensive strengths to full use. 7

9 Basic Policy for Selection of Accounting Standards Considering comparability of consolidated financial statements among different periods and companies, the Group policy is to produce consolidated financial statements based on Japanese standard for the time being. Regarding application of IFRS, our policy is to respond to it adequately, considering both domestic and overseas trends. Others (1) Changes of Executives (as of June 24, 2015) 1) Changes of representative directors None applicable. 2) Changes of other directors A. New external board member External Board Member Kanoko Oishi B. Retiring board member Board Member Nobuhiko Umezaki C. New corporate auditor External Corporate Auditor Hiroshi Adachi (currently Standing Corporate Auditor) and Minoru Kudo D. Retiring auditor Standing Corporate Auditor Masaaki Shibaike and Haruo Kuramochi 8

10 Consolidated Financial Statements Ezaki Glico Co., Ltd. and Consolidated Subsidiaries Fiscal years ended 31st March, 2015 and

11 Consolidated Balance Sheets 31st March, 2015 and (Millions of yen) (Thousands of U.S. dollars) (Note 1) Assets Current assets: Cash and deposits (Note 4,5) 37,111 28,721 $ 308,819 Marketable securities (Note5,6) 29,249 27, ,395 Notes and accounts receivable (Note 5) 33,078 30, ,263 Less allowance for doubtful accounts (78) (99) (652) Inventories (Note 7) 25,065 20, ,583 Deferred income taxes (Note 17) 2,246 1,286 18,694 Other current assets 5,652 6,033 47,029 Total current assets 132, ,869 1,101,131 Property, plant and equipment (Note 9, 19): Land 13,933 14, ,945 Buildings and structures 69,043 67, ,543 Machinery and vehicles 128, ,574 1,069,421 Tools, furniture and fixtures 23,732 21, ,488 Lease 1,089 1,125 9,063 Construction in progress 3,772 2,164 31, , ,524 1,997,848 Less accumulated depreciation (167,373) (161,853) (1,392,808) Property, plant and equipment, net 72,708 70, ,040 Investments and other assets: Investments in unconsolidated subsidiaries and affiliates 3,202 1,657 26,646 Investments in securities (Note 5,6) 44,332 40, ,913 Long-term loans receivable ,786 Deferred income taxes (Note 17) 810 2,505 6,741 Asset for retirement benefits (Note 11) 2,747 1,884 22,857 Software 1,939 2,251 16,139 Software in progress ,311 Real estate for investment (Notes 19) 12,403 3, ,212 Other assets (Notes 9) 4,163 4,684 34,643 Less allowance for doubtful accounts (57) (162) (474) Total investments and other assets 70,272 57, ,774 Total assets 275, ,244 $ 2,290,945 See accompanying notes to the consolidated financial statements. 10

12 (Millions of yen) (Thousands of U.S. dollars) (Note 1) Liabilities and Net Assets Current liabilities: Notes and accounts payable (Note 5) 29,565 25,749 $ 246,026 Short-term loans (Note 5,10) 7,621 8,025 63,419 Current portion of long-term debts (Note 5,10) 4,000 10,000 33,286 Accrued expenses 22,121 20, ,081 Accrued income taxes (Note 17) 5,401 1,960 44,945 Accrued bonuses for directors and corporate auditors Accrued expense for sales promotion 1,509 1,584 12,557 Other current liabilities 8,469 6,456 70,472 Total current liabilities 78,730 74, ,152 Long-term liabilities: Long-term debts (Note 10) 1,343 5,332 11,178 Liability for retirement benefits (Note 11) 10,282 11,064 85,558 Provision for business structure improvement Deferred tax liabilities (Note 17) 5,176 2,035 43,074 Other long-term liabilities 4,828 4,903 40,180 Total long-term liabilities 21,734 23, ,864 Net assets: Shareholders equity (Note 12): Common stock: Authorized 270,000,000 shares in 2015 and 470,000,000 shares in 2014 Issued 69,430,069 shares in 2015 and 138,860,138 shares in ,774 7,774 64,689 Capital surplus 7,484 7,414 62,280 Retained earnings (Notes 12, 22) 144, ,124 1,203,018 Treasury stock, at cost 3,860,644 shares in 2015, and 7,750,303 shares in 2014 (6,626) (6,611) (55,141) Total shareholders equity 153, ,701 1,274,846 Other comprehensive income: Net unrealized holding gain on securities 11,875 7,478 98,822 Translation adjustments 4,282 2,088 35,629 Retirement benefits liability adjustments (43) (825) (356) Total other comprehensive income 16,114 8, ,095 Minority interests 5,526 4,062 45,988 Total net assets 174, ,504 1,454,929 Total liabilities and net assets 275, ,244 $ 2,290,945 See accompanying notes to the consolidated financial statements. 11

13 Consolidated Statements of Income and Comprehensive Income Fiscal years ended 31st March, 2015 and (Millions of yen) (Thousands of U.S. dollars) (Note 1) Net sales 319, ,399 $ 2,657,848 Cost of sales 177, ,796 1,479,426 Gross profit 141, ,603 1,178,422 Selling, general and administrative expenses (Note 16) 127, ,958 1,059,860 Operating income 14,248 11, ,562 Other income (expenses): Interest and dividend income 1,054 1,117 8,774 Interest expense (240) (288) (1,998) Gain on sales of marketable securities Loss on disposal of property, plant and equipment (234) (198) (1,950) Gain on sales of property, plant and equipment (Note 8) 11, ,429 Loss on impairment of fixed assets (Note 9) (16) (204) (131) Gain on sales of investment in securities 1,053 1,331 8,762 Gain on redemption of investment securities ,545 Gain from foreign exchange 1, ,945 Gain on insurance adjustment - 2,142 - Other, net 1, ,972 Income before income taxes and minority interests 31,113 17, ,910 Income taxes (Note 17): Current 7,313 3,550 60,851 Deferred 1,825 1,742 15,190 9,138 5,292 76,041 Income before minority interests 21,975 12, ,869 Minority interests 907 1,044 7,549 Net income 21,068 11, ,320 Minority interests 907 1,044 7,549 See accompanying notes to the consolidated financial statements. 12

14 (Millions of yen) (Thousands of U.S. dollars) (Note 1) Income before minority interests 21,975 12, ,869 Other comprehensive Income Net unrealized holding gain on securities 4,398 1,432 36,592 Loss on deferred hedges Translation adjustments 2,604 3,633 21,670 Remeasurements of defined benefit plans, net of tax 780-6,491 Share of other comprehensive income of entities accounted for using equity method 212-1,768 Total other comprehensive income 7,994 5,107 66,521 Comprehensive Income 29,969 17,185 $ 249,390 Total comprehensive income attributable to: Shareholders of Ezaki Glico Co., Ltd. 28,489 15,515 $ 237,070 Minority interests 1,480 1,670 $ 12,320 See accompanying notes to the consolidated financial statements. 13

15 Consolidated Statements of Changes in Net Assets Fiscal years ended 31st March, 2015 and 2014 Millions Thousands of of yen U.S. dollars (Note 1) Shareholders equity: Common stock Balance at beginning of year 7,774 7,774 $ 64,689 Balance at end of year 7,774 7,774 $ 64,689 Capital surplus Balance at beginning of year 7,414 7,443 $ 61,694 Disposition of treasury stock 70 (405) 586 Disposal of treasury stock - (5,110) - Transfer to capital surplus from retained earnings - 5,486 - Balance at end of year 7,484 7,414 $ 62,280 Retained earnings Balance at beginning of year 124, ,469 $ 1,032,903 Cumulative effects of changes in accounting policies Restated balance 124,240-1,033,865 Cash dividends (1,311) (1,138) (10,911) Interim cash dividends (656) (655) (5,455) Net income 21,068 11, ,320 Transfer to capital surplus from retained earnings - (5,486) - Change in scope of consolidation - (100) - Change of scope of equity method 1,226-10,199 Balance at end of year 144, ,124 $ 1,203,018 Treasury stock Balance at beginning of year (6,611) (26,474) $ (55,010) Acquisition of treasury stock (77) (57) (642) Disposition of treasury stock 62 14, Retirement of treasury stock - 5,110 - Balance at end of year (6,626) (6,611) $ (55,141) Other comprehensive income: Net unrealized holding gains on securities Balance at beginning of year 7,478 6,046 $ 62,230 Net changes during the year 4,397 1,432 36,592 Balance at end of year 11,875 7,478 $ 98,822 Loss on deferred hedges Balance at beginning of year - (42) $ - Net changes during the year Balance at end of year - - $ - Translation adjustments Balance at beginning of year 2,088 (919) $ 17,372 Net changes during the year 2,194 3,007 18,257 Balance at end of year 4,282 2,088 $ 35,629 See accompanying notes to the consolidated financial statements. 14

16 Millions Thousands of of yen U.S. dollars (Note 1) Retirement benefits liability adjustments Balance at beginning of year (825) - $ (6,864) Net changes during the year 782 (825) 6,508 Balance at end of year (43) (825) $ (356) Minority interests: Balance at beginning of year 4,062 2,050 $ 33,807 Cumulative effects of changes in accounting policies 0-1 Restated balance 4,062-33,808 Net changes during the year 1,464 2,012 12,180 Balance at end of year 5,526 4,062 $ 45,988 See accompanying notes to the consolidated financial statements. 15

17 Consolidated Statements of Cash Flows Fiscal years ended 31st March, 2015 and (Millions of yen) (Thousands of U.S. dollars) (Note 1) Cash flows from operating activities: Income before income taxes and minority interests 31,113 17,370 $258,910 Adjustments to reconcile income before income taxes and minority interests to net cash provided by operating activities: Depreciation and amortization 11,018 11,209 91,683 Loss on impairment of fixed assets Decrease in provision for business structure improvement - (449) - Decrease in accrued retirement benefits for employees - (8,479) - Increase (decrease) in net defined benefit asset and liability (542) 9,180 (4,508) Increase (decrease) in accrued bonuses for directors and (0) 0 (2) corporate auditors Increase (decrease) in accrued expense for sales promotion (75) 40 (624) Decrease in provision for doubtful accounts (129) (250) (1,074) Interest and dividend income (1,054) (1,117) (8,774) Interest expense ,998 Exchange gain (1,243) (349) (10,342) Gain on sales of property, plant and equipment (11,976) (147) (99,658) Loss on disposal of property, plant and equipment ,950 Gain on sales of investment securities (1,053) (1,331) (8,762) Gain on redemption of investment securities (426) (611) (3,545) Decrease (increase) in notes and accounts receivable (1,637) 1,773 (13,623) Increase in inventories (4,450) (1,336) (37,033) Increase (decrease) in notes and accounts payable 3,368 (3,229) 28,029 Other 5,086 2,210 42,328 Subtotal 28,490 25, ,084 Income taxes paid (3,970) (2,674) (33,036) Net cash provided by operating activities 24,520 22, ,048 Cash flows from investing activities: Increase in time deposits (4,528) (6,132) (37,681) Decrease in time deposits 3,262 5,387 27,141 Purchases of marketable securities (3,107) (1,601) (25,857) Proceeds from sales of marketable securities 507 1,223 4,221 Purchase of trust beneficiary right (2,075) (500) (17,267) Proceeds from redemption of trust beneficiary right 1,000-8,322 Purchases of investments in securities (511) (6,426) (4,256) Proceeds from sales and redemption of investments in 3,568 6,887 29,692 securities Purchases of property, plant and equipment (10,210) (15,014) (84,965) Proceeds from sales of property, plant and equipment 12, ,816 Purchases of intangible assets (833) (1,486) (6,934) Proceeds from sales of real estate for investment 1,126-9,373 Purchase of real estate for investment (10,116) - (84,180) Proceeds from sales of investments in subsidiaries resulting in change in scope of consolidation Increase in loans receivable (1,035) (68) (8,616) Collection of loans receivable 1, ,930 Interest and dividends received 1,070 1,144 8,902 Other Net cash used in investing activities (7,877) (14,935) (65,549) Cash flows from financing activities: Increase (decrease) in short-term loans, net (650) (2,296) (5,409) Repayment of long-term loans payable (10,129) (845) (84,292) Interest and dividends paid (2,237) (2,086) (18,614) Cash dividends paid to minority shareholders (17) (12) (140) See accompanying notes to the consolidated financial statements. 16

18 (Millions of yen) (Thousands of U.S. dollars) (Note 1) Acquisition of treasury stock (77) (57) (642) Proceeds from stock issuance to minority shareholders Proceeds from sales of treasury stock ,406 1,096 Other (225) (217) (1,865) Net cash provided (used in) by financing activities (13,203) 8,944 (109,866) Effect of exchange rate changes on cash and cash equivalents 1,741 1,686 14,480 Net increase in cash and cash equivalents 5,181 18,195 43,113 Cash and cash equivalents at beginning of the year 54,225 35, ,238 Increase in cash and cash equivalents from newly consolidated subsidiaries Cash and cash equivalents at end of the year (Note 4) 59,406 54,225 $494,351 See accompanying notes to the consolidated financial statements. 17

19 Notes to Consolidated Financial Statements 31st March, Basis of Presentation Ezaki Glico Co., Ltd. (the Company ) and its domestic subsidiaries maintain their books of account in conformity with accounting principles generally accepted in Japan, and its overseas subsidiaries maintain their books of account in conformity with those of their respective countries of domicile. The accompanying consolidated financial statements are prepared on the basis of accounting principles generally accepted in Japan, which are different in certain respects as to the application and disclosure requirements of International Financial Reporting Standards, and have been compiled from the consolidated financial statements prepared by the Company as required by the Financial Instruments and Exchange Law of Japan. Certain reclassifications of previously reported amounts have been made to the consolidated financial statements for the fiscal year ended 31st March, 2014 to conform them to the 2015 presentation. Such reclassifications had no effect on consolidated net income or net assets. Amounts in U.S. dollars are included solely for the convenience of the reader. The rate of = U.S. $1.00, the approximate rate of exchange in effect prevailing on 31st March, 2015, has been utilized. The inclusion of such amounts is not intended to imply that yen amounts have been or could be readily converted, realized or settled in U.S. dollars at that or any other rate. 18

20 2. Summary of Significant Accounting Policies (a) Principles of consolidation and accounting for investments in unconsolidated subsidiaries and affiliates The accompanying consolidated financial statements include the accounts of the Company and any significant companies which it controls directly or indirectly. All significant intercompany balances and transactions have been eliminated in consolidation. Investments in subsidiaries and affiliates which are not consolidated or accounted for by the equity method are carried at cost. Differences between the cost and the underlying net equity at fair value of investments in consolidated subsidiaries have been amortized principally by the straight-line method over 5 years. Minor differences are charged or credited to income in the year of acquisition. The balance sheet date of the overseas consolidated subsidiaries is 31st December. Any significant differences in intercompany accounts and transactions arising from intervening intercompany transactions during the period from 1st January through 31st March have been adjusted, if necessary. (b) Foreign currency translation Revenue and expense items arising from transactions denominated in foreign currencies are generally translated into yen at the rates in effect at the respective transaction dates. Gain or loss on foreign exchange is credited or charged to income in the period in which the gain or loss is recognized for financial reporting purposes. All monetary assets and liabilities denominated in foreign currencies are translated into yen at the rates of exchange in effect at the balance sheet date and gain or loss on each translation is credited or charged to income. The financial statements of the overseas consolidated subsidiaries are translated into yen at the rates of exchange in effect at the balance sheet date except that the components of shareholders equity are translated at their historical exchange rates. Translation adjustments are presented as a component of net assets in the accompanying consolidated balance sheets. 19

21 2. Summary of Significant Accounting Policies (continued) (c) Cash and cash equivalents For purposes of the consolidated statements of cash flows, cash and cash equivalents consist of cash on hand, deposits with banks withdrawable on demand, and short-term investments which are readily convertible to cash subject to an insignificant risk of any changes in value and which were purchased with an original maturity of three months or less. (d) Allowance for doubtful accounts The allowance for doubtful accounts is calculated based on the actual historical ratio of bad debts and an estimate of certain uncollectible amounts determined after an analysis of specific individual receivables. (e) Marketable securities and investments in securities The accounting standard applicable to financial instruments requires that securities be classified into three categories: trading securities, held-to-maturity debt securities or other securities. Trading securities are carried at fair value, and gain or loss, both realized and unrealized, is credited or charged to income. Held-to-maturity debt securities are carried at amortized cost. Marketable securities classified as other securities are carried at fair value with any changes in unrealized holding gain or loss, net of the applicable income taxes, reported as a separate component of net assets. Non-marketable securities classified as other securities are carried at cost. Cost of securities sold is principally determined by the moving average method. Compound financial instruments inclusive of derivative components are in aggregate carried at fair value. (f) Inventories Inventories are stated at the lower of cost, determined principally by the weighted-average method, or market. Inventories with lower profitability are written down to the amount of its net selling value and differential would be charged to income. (g) Property, plant and equipment and real estate for investment (except for leases) Property, plant and equipment and real estate for investment are stated at cost. Depreciation is principally determined by the declining-balance method at rates based on the estimated useful lives of the respective assets, except for buildings (excluding structures attached to the buildings) acquired on or after 1st April, 1998 to which the straight-line method is applied. (h) Computer software (except for leases) Expenditures relating to the cost of computer software intended for internal use are charged to income as incurred, except if these are deemed to contribute to the generation of future income or cost savings. Such expenditures are capitalized and amortized by the straight-line method over an estimated useful life of 5 years. 20

22 2. Summary of Significant Accounting Policies (continued) (i) Leases Leases are depreciated by the straight-line method over serviceable life with residual value zero. (j) Accrued bonuses for directors and corporate auditors Accrued bonuses for directors and corporate auditors are provided at the estimated amount of bonuses to be paid. (k) Accrued retirement benefits Accrued retirement benefits for employees have been provided mainly at an amount calculated based on the retirement benefit obligation and the fair value of the pension plan assets as of the balance sheet date. The retirement benefit obligation is attributed to each period by the straight-line method over the estimated remaining years of service of the eligible employees. Prior service cost is amortized in the year in which the gain or loss is recognized primarily by the straight-line method over a period of 5 years, which is within the estimated average remaining years of service of the eligible employees. Net unrecognized actuarial gain or loss is amortized commencing the year following the year in which the gain or loss is recognized primarily by the straight-line method over a period of 5 years, which is within the estimated average remaining years of service of the eligible employees. (l) Accrued expense for sales promotion Accrued sales promotion costs are provided at the estimated amount of sales promotion costs to be paid. (m) Provision for business structure improvement Provision for business structure improvement is reasonably provided at possible losses by the subsidiaries rearrangement for the business structure improvement after the next fiscal year. 21

23 2. Summary of Significant Accounting Policies (continued) (n) Derivative financial instruments and hedging activities All derivatives are stated at fair value with any changes in fair value included in net income or loss for the period in which they arise, except for derivatives which meet the criteria for deferral hedge accounting under which realized gain or loss is deferred as a component of net assets. Receivables and payables hedged by forward exchange contracts which meet certain conditions are translated at their contracted rates. Interest-rate swaps which meet certain conditions are accounted for as if the interest rates applied to the swaps had originally applied to the underlying debt and investment assets. (o) Appropriation of retained earnings Under the Corporation Law of Japan, the appropriation of retained earnings with respect to a given financial period is made by resolution of the shareholders at a general meeting held subsequent to the close of the financial period and the accounts for the period, therefore, do not reflect such appropriations. (See Note 22.) 3. Additional Information (Application of the Accounting Standard for Retirement Benefits ) For Accounting Standards Board of Japan (ASBJ) Statement No.26 Accounting Standard for Retirement Benefits (17th May, 2012) and ASBJ Guidance No.25 Guidance on Accounting Standard for Retirement Benefits (26th March, 2015, hereinafter Guidance on Retirement Benefits ), the Company and its domestic consolidated subsidiaries have additionally applied the provisions set forth in the main clause of paragraph 35 of the Accounting Standard for Retirement Benefits and the main clause of paragraph 67 of the Guidance on Retirement Benefits from the fiscal year ended 31st March 2015 and reviewed the determination of retirement benefit obligations and current service cost. In addition, the Company and its domestic consolidated subsidiaries changed the method of attributing expected benefit to periods from the straight-line basis to the benefit formula basis, and changed the method for calculating the discount rate. The Accounting Standard for Retirement Benefits and its guidance are applied with transitional treatments stipulated in paragraph 37 of the Accounting Standard for Retirement Benefits. As of 1st April, 2014, impact of this change was reflected in retained earnings. As a result, as of 1st April, 2014, assets for retirement benefits decreased 726 million ($6,044 thousand), liability for retirement benefits decreased 906 million ($7,543 thousand) and retained earnings increased 116 million ($962 thousand). In addition, the impact of these changes on operating income, income before income taxes and minority interests and per share data is immaterial, it has been omitted. 22

24 (Application of practical solution on transactions of delivering the Company s own stock to employees etc. through trusts) Practical Solution on Transactions of Delivering the Company s Own Stock to Employees etc. through Trusts (ASBJ Practical Issues Task Force (PITF) No. 30, issued on 26th March, 2015), have been applied since this fiscal year. The accounting for those transactions has been conducted according to the conventional method which had been put into practice previously. There is no impact on financial statements. (Transactions to transfer the Company shares to the employees through the trust) The Company has introduced the Employee Stock Ownership Plan (ESOP) Trust (the Plan ), in order to provide the Company group s employees with incentives to promote the benefit and welfare of the employees of the Company group and others and to increase the enterprise value of the Company. (a) Outline of the transactions The Plan is an incentive plan, in which all employees of the Company group who are members of the Ezaki Glico Share Holding Association ( Share Holding Association ) may participate. The Company creates a trust with those of the employee member of the Share Holding Association who meet certain requirements as its beneficiaries, and during a predetermined period, the trust acquires the number of Ezaki Glico s shares that the Association is expected to acquire over the next five years. Afterwards, the trust sells off our stocks to the Share Holding Association in accordance with certain plan. The remaining funds will be distributed according to employee s contribution ratio when there are the trust earnings resulting from an upward swing in stock price when the trust ends. There is no additional burden on the employee as we will pay back the loan based our guarantee clause of the loan agreement when a loss is caused by a drop on stock prices. (b) Although the Company applied Practical Solution on Transactions of Delivering the Company s Own Stock to Employees etc. through Trusts (ASBJ Practical Issues Task Force (PITF) No. 30, issued on 26th March, 2015), the accounting for those transactions has been conducted according to the conventional method. (c) The items relating to the Company shares owned by the Trust 1. Book value of the Company shares owned by the Trust As of 31st March, 2014: 571 million As of 31st March, 2015: 513 million 2. The Company shares owned by the Trust are accounted for as treasury stock. 23

25 3. Number of the Company shares owned by the Trust at the end of the last fiscal year and the average number of shares owned by the Trust Number of the Company shares owned by the Trust at the end of the fiscal year As of 31st March, 2014: 335 thousand shares* As of 31st March, 2015: 299 thousand shares Average number of shares owned by the Trust As of 31st March, 2014: 363 thousand shares* As of 31st March, 2015: 314 thousand shares *Ezaki Glico Corporation implemented a share consolidation on its common stock with a ratio of two shares to one share on October 1, These are calculated based on the assumption that consolidation of shares had been carried out at the beginning of the previous fiscal year. 4. The number of the Company shares mentioned in part 3. was included in the treasury stock to be deducted in terms of calculating relevant per share indicators. 4. Cash and Cash Equivalents The balances of cash and deposits reflected in the consolidated balance sheets at 31st March, 2015 and 2014 are reconciled to the balances of cash and cash equivalents as presented in the consolidated statements of cash flows for the fiscal years then ended as follows: (Millions of yen) (Thousands of U.S. dollars) Cash and deposits 37,111 28,721 $308,819 Time deposits with original maturities in excess of three months included in cash and deposits (3,081) (1,815) (25,637) Short-term investments which mature within three months of the dates of acquisition included in marketable securities 25,376 27, ,169 Short-term investments which mature within three months of the dates of acquisition included in other current assets Cash and cash equivalents 59,406 54,225 $ 494,351 24

26 5. Financial Instruments Ezaki Glico Co., Ltd. and Consolidated Subsidiaries For the fiscal year ended 31st March, 2015 and 2014 Overview a) Action policy for financial instruments The Group raise funds mainly through bank borrowings and bond issue according to capital investments plan and other long-term capital needs. The Group raises the short-term operating funds through bank borrowings. The Group manages cash surpluses through liquid, highly stable financial instruments and stocks of other companies with which the Group has business relationships. Derivative financial instruments are utilized to reduce risk and the Group does not hold or issue derivative financial instruments for speculative trading purposes. b) Contents of financial instruments and related risk Operating receivables such as notes and accounts receivable are exposed to credit risk of customers. Marketable securities and investments in securities are bonds except held-to-maturity debt securities and the stocks; and those securities are exposed to credit risk, market fluctuation risk and interest rate risk. Business liabilities such as notes and accounts payable are, mostly due within six months. Among debt payable, short-term loans are related with business, and the long-term debts are taken out mainly for the purpose of making capital investments. Among these, the floating rate loan is exposed to interest rate risk. As for derivative financial instruments, forward exchange contracts and currency swap transactions are used for the purpose of reducing exchange rate risk of foreign currency bond and debt, and interest rate swap transactions are utilized for the purpose of reducing interest rate risk in a future market of investment in securities. c) Risk management for financial instruments (1) Monitoring of credit risk (the risk that customers or counterparties may default) The Group manages, according to the credit management official rules of each company, the due date and the balance of operating receivables from business partners, and regularly monitors the status of major counterparties to quickly identify and reduce concerns of repayment resulting from the weakening of the counterparties financial situation. In addition, the Group utilizes business credit insurance for some operating receivables. Because the securities and investment in securities are limited to the financial institutions with high credit ratings, the Group assumes that the credit risk is insignificant. The Group deals with only highly rated financial institutions to reduce counterparty risk in conducting derivative transactions. 25

27 5. Financial Instruments (continued) (2) Monitoring of market risk (the risks arising from fluctuations in foreign exchange rates or interest rates) For securities and investments in securities, the Group periodically reviews the fair values of such financial instruments and the financial position or the ratings of the issuers. In addition, the Group regularly evaluates whether securities should be maintained taking into account their fair values and relationships with the issuers. In conducting derivative transactions, the division in charge of each derivative transaction follows the internal policies, which set forth delegation of authority. Reports including actual transaction data are submitted to top management for their review. (3) Monitoring of liquidity risk (the risk that the Company cannot meet its obligations on scheduled due dates) The Company introduces a cash management system for the main domestic companies in the Group. Based on the business plan of the Group companies, accounting department makes a fund raising plan and updates the plan timely while taking the results into consideration. In addition, the Group manages liquidity risk by means of maintaining sufficient liquidity on hand, using a loan commitment contract. d) Supplementary explanation of the estimated fair value of financial instruments The fair value of financial instruments is based on their quoted market price, if available. When there is no quoted market price available, fair value is reasonably estimated. Since various assumptions and factors are reflected in estimating the fair value, different assumptions and factors could result in different fair value. In addition, the notional amounts of derivatives in Note.14 Derivatives are not necessarily indicative of the actual market risk involved in derivative transactions. Estimated fair value of financial instruments Carrying value of financial instruments on the consolidated balance sheet as of 31st March, 2015, 2014 and estimated fair value are as follows. Financial instruments for which it is extremely difficult to determine the fair value are not included (please refer to Note.2 below). 26